The European Commission said that the effective and efficient separation of the activities of state-owned power producer Electricity Authority of Cyprus (EAC) could allow more competition and better market regulation, help economic growth, and prepare the company’s privatisation at a later stage.

The unbundling of the power company into a division operating the transmission and distribution network and another in charge of commercial functions of generation and supply enacted earlier this month, “would reduce EAC’s power to fully control the market and facilitate the effective regulation of the market by the energy regulator Cyprus Electricity Regulatory Authority (CERA),” the European Commission said in its first post-programme surveillance report. “It would not necessitate a change of ownership of EAC’s assets, but would facilitate privatisation in the long run. The modernisation of Cyprus’ electricity sector, which could lead to lower costs and prices and higher energy efficiency, would have a positive impact on potential growth”.

“The electricity market in Cyprus presents a series of structural deficiencies, which call for a comprehensive reform,” the European Commission said adding that electricity prices in Cyprus are among the highest in the European Union because of Cyprus’s reliance on fossil fuel to generate power, accounting for 93 per cent in 2014.

The EAC applied the unbundling on December 1 and awaits comments from CERA. While the company is managed by a director general accountable to the board, EAC-network and EAC-commercial have an executive director at their helm.

“If properly done, (the unbundling) can prevent anticompetitive behaviours such as cross-subsidisation between competitive and monopolistic activities, selective disclosure of information to market participants, or discriminatory access to the electricity grid,” the Commission said.

The government which backed down from an initial commitment to privatise the EAC in 2015 amid increasing political and union opposition, with unions threatening to strike, opted instead for splitting the company’s operations.

While the energy market in the EU was completely opened in 2014, the market share of independent power producers remains small, restricted mostly to renewable energy sources. Private producers are obliged to sell their production to the EAC, whose power generation capacity accounts for 146 per cent of expected maximum demand.

“By promoting competition, and provided that a well-regulated market structure is in place, unbundling can be a decisive factor towards ensuring lower energy prices for end-consumers,” the Commission said.